Credit Card Debt - tips needed

Hi folks,

I am new to this forum, joined in to ask similar question re: credit card...My debt is not that bad its only 2.5 k to AIB and 4 k to credit union and other small debts which are irrelevant. Im in college at the mo and will be in 2012 as well. Repaying my minimum commitments on a monthly basis. The only debt I am not able to reduce and having problem with is AIB credit card, as the interest of 45 is almost equal to my minimum payments, meaning I will be in same shape in foreseeable future until pay off the debt in 1 go. I wrote them a letter and explained the situation but to no help, they want interest, BTW I paid them over 1.5 k of interest alone for the past 2 years. I tried to negotiate with AIB to freeze the interest and let me repay without interest charges applied. They said this can only be done if I agree to be reported to ICB because I am charged bad debt. My question is the following: is it worth to get reported to ICB over 2.5 k or is there any other way. Spoke to MABS already, they said that is the only way to stop the interest. I simply cannot afford to pay off the amount in one go but cannot allow them to have a free ride on me any longer...Please advise what the best solution here...Thank you...

Whether or not it's worth to get a black mark on your credit record depends on your plans for the next few years. The black mark will stay on your record for 6 years - are you likely to want/need to use more credit during the next 6 years? For example, do you hope to buy a house within 6 years? Or will you need a car loan? If not, then a black mark shouldn't bother you too much.

Also what kind of salary do you expect to earn once you finish your studies? If you expect to start earning decent money in a couple of years, you'll be able to repay 2.5K then without much difficulty, and paying at least the interest until then isn't so bad.

On the other side, if it's going to take your years to repay this debt after you graduate, it may be worth getting the black mark now if that allows you to start reducing the debt.

tech bro said:

The only debt I am not able to reduce and having problem with is AIB credit card, as the interest of 45 is almost equal to my minimum payments, meaning I will be in same shape in foreseeable future until pay off the debt in 1 go.

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You don't only have the choice of paying minimum payments or the whole lot, you should be paying more than the minimum payment every month to reduce the balance gradually.

If you could pay an extra 10-20 euro per month even for now you would at least be making a dent in it and reducing the interest as well.

2,500 is not worth ruining your credit rating over, it could cost you a lot more in the long run.

I do feel responsible for the debt, but the bank made their principle + interest at that stage according to my calculations, because I'm in college at the mo and will be next year I cannot repay in 1 go, I don't see many chances my income will increase to repay it quicker unfortunately, there must be some other way...

Thanks for reply guys, yeah, I think there is another solution to it, got an advise on board.ie , go to the CU and see if they can take on CC debt as their interest is only 1% or alternatively find another crowd who would take on the debt on 0% interest for the first 6/9 month, will try how that works out, will let you know the outcome...

tech bro said:

... Repaying my minimum commitments on a monthly basis. The only debt I am not able to reduce and having problem with is AIB credit card, as the interest of 45 is almost equal to my minimum payments, meaning I will be in same shape in foreseeable future until pay off the debt in 1 go. ...

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The minimum repayment amount is of course only slightly more than the interest due. The interest is their income, and it is paid by you before paying anything off the principal. Reason being, they would much rather you continue to provide them with a steady income. As you have noticed over time it certainly adds up! You are not obliged to pay the full amount off in one go so you don't have to wait until you can do so to start clearing the debt. If you can do so clearly that would be the cheapest approach so hopefully the CU will give you a loan to clear it (though I am not sure which CUs are loaning at 1%, the rate on the loan will certainly be cheaper)

If you find that you cannot source a loan to pay off the CC debt, or another CC provider to provide you with an interest-free period, start doing as Mrs Vimes suggested and pay off minimum + an affordable amount. This will allow you to start tackling the principal.

One cautionary note, if you manage to get another CC company to give you an interest free period - DO NOT USE THE CREDIT CARD. If you do, the normal approach is that the money you pay goes towards clearing the new debt first not the old. They don't give you an interest free period because they are philanthopic organisations hoping that you will become debt-free. They do so because they can use that as a lure to entice new customers whom they KNOW are likely to continue to provide them with income over the long term. The only people who want interest-free periods on credit cards are those who run up debts on credit cards.

go to the CU and see if they can take on CC debt as their interest is only 1%

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I don't know who is giving you that advice. The Credit Unions would generally charge around 9% but if they require you to keep 25% of the amount in shares, the effective interest rate is much higher.

Does your local Credit Union have some special student deal?

Assuming you are paying something towards your CU loan, perhaps you should put all efforts into the CC loan for the moment as that is by far the greater interest charge.

I think you were probably told credit union interest rate limited to 1% per month on the balance - works out about 12% pa.

tech bro said:

My debt is not that bad its only 2.5 k to AIB and 4 k to credit union and other small debts which are irrelevant. .

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Where did you get the idea that your debts are not that bad and that other small debts are not relevant?

Hello,
Let's say you owe $5,000 on your credit cards and are paying 18% interest. The credit card companies, which of course like having a steady stream of revenue, might ask you to make a minimum payment of $150 a month. But just making a minimum payment will result in years of debt.

Assuming you make no new purchases and pay a fixed $150 each month for the next several years, how long will it take to pay off the $5,000 debt? Three years and 11 months. You will also end up paying approximately $2,000 in interest. That's a lot of money to pay for credit.

thanks!!